Santander and El Corte Inglés have sold 808 million euros in loans from their clients to institutional investors, as published The Confidential. Instead of keeping those loans on their books, they have packaged them and transferred them to investment funds.
Why is it important. The department store doesn’t just sell washing machines or sofas: it finances its customers’ purchases for months or years without charging interest.
- These debts are converted into a financial asset that is then sold to investors in exchange for periodic payments.
- If someone doesn’t pay their loan, the problem is no longer yours.
It is financial engineering applied in a very ingenious way to retail.
How the business works. A brushstroke to understand it:
- El Corte Inglés sells you a TV for 1,000 euros and lets you pay for it in 10 months without interest.
- Instead of waiting 10 months to collect that 1,000 euros, package your debt with thousands of others and sell it to investors for, say, 950 euros.
- He collects the money immediately, eliminates the risk of you not paying, and can use that capital to finance more purchases.
- Investors pay 950 euros today and will collect 1,000 in 10 months. You still don’t pay interest. Everyone wins.
What has happened. The operation was closed in the Dublin market and includes all types of credits:
- Interest-free financing for up to five years.
- Credit card debts.
- And small loans of 300 to 900 euros.
Investors who buy these packages charge different interest rates depending on the risk they assume. In the largest section (664 million), they charge 0.87% above the Euribor. In the highest risk sections, the differential rises to 6.2%.
Between the lines. By selling these credits, the financial company removes the risk from its balance sheet and frees up space to continue lending money. Banking regulators approve this type of operation because it spreads the risk throughout the financial system instead of concentrating it in a single entity.
For Santander and El Corte Inglés, it is a way to grow without accumulating all the danger of defaults.
The background. Santander bought 51% of the financial company of El Corte Inglés in 2013paying 140 million for control and another 140 million as an immediate dividend.
The bank saw the potential clearly: the margins on consumer credit are much higher than those of traditional banking. El Corte Inglés maintains 49% without managing anything. A perfect capitalist partner.
Yes, but. Financiera El Corte Inglés is not marginal: it handles nearly a third of the consumer banking business in Spain and Portugal. His loyalty card It has 11.7 million members who last year made purchases worth 3,778 million, both in department stores and in supermarkets and other subsidiaries. That customer base is a gold mine.
The context. These operations have become increasingly popular in the Spanish financial sector. Santander has been the most active European bank packaging and selling loan portfolios. For an entity like Financiera El Corte Inglés, this mechanism not only frees capital: it also makes it possible to avoid regulatory limits on risk concentration.
behind the scenes. The model reveals how the retail Spanish. The real margin is no longer just in selling a product, but in financing its purchase and then monetizing that debt by selling it to investment funds. El Corte Inglés sells televisions, but above all it sells credits. And then it sells the risk of those credits.
Squaring the circle.
Featured image | The English Court
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